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waderoush writes "Say you're in your early 20s, you're finishing college or graduate school, and you're smart but poor — and you've got some big student loans hanging over you. You're pretty sure that within 10 years you'll be selling your first startup or earning a high-six-figure salary. But you need some money *now* so that you can actually start the company, and avoid taking a corporate job. Shouldn't there be a way to calculate how much you'll be worth, and borrow against that promise of future success? Upstart, a new Palo Alto investing operation founded by a group of ex-Google employees, thinks the answer is yes. In a new spin on the crowdfunding model, the organization gathers data from recent graduates such as schools attended, academic transcripts, job offers, and credit scores. Its 'pricing engine,' based partly on techniques developed to assess job applicants at Google, determines how much each aspiring 'upstart' should be allowed to raise from investors per each percentage point of their future income. Upstart has already helped 35 young people raise amounts varying from $10,000 to $170,000; the upstarts, who must pay the money back over a 10-year period, say they're using the funds mainly to retire student debt or bootstrap startups. 'We can look at a 25-year-old and very quickly assess whether he or she would be successful at Google,' says Upstart founder Dave Girouard, formerly the head of Googles $1 billion enterprise apps division. 'My whole thesis was, if you could use the same algorithms to predict whether he or she would be successful beyond that, in the business world, that would be pretty useful.'"

I like it. A place for old cynical bastards to laugh at young entrepreneurial types.We can call it BeatDown. That's right, the startups get beat down.

You put out a beatdown of 1/100th of his "predicted value" in 10 years and someone buys that, giving you that money.You agree to buy one 1/100th his company worth of shares in 10 years and give it to the investor.

If the startup goes broke, you owe nothing. If they turn into the next facebook, yer SCREWED. (Buy hey, that's pretty rare)

The whole thing sounds like a self-fulfilling prophesy to me, find a bunch of enterprising but poor graduates, take some financial pressure of one of them for 10yrs, bingo that person is "successful", and you own a chunk of their "success". Don't get me wrong, I think investing in young people is a GoodThing(TM) but this is not a prediction, it's an informed choice.

Yeah that's what i thought was weird about this scheme, and the value of completing particular uni courses (apparently a MBA is the way to gauge an entrepreneur success). One of the co-founders of this upstart place didn't finish his course either. Unless they are minimizing risk, by only going after the people that will almost certainly be, slightly successful.

When I was in my late thirties, a young (around 24 years old) programmer smugly and condescendingly told me that by the time he was 30, he'd be "retired and on a beach somewhere". It was quite insulting.

So I sighed loudly and said "When I was your age, I said the same exact thing." Then I looked around, held out my arms, and said "So, how do you like your future? It's not bad, there's a pension at some point."

This was at a government agency, where careers go to die. He turned white as a ghost and changed the subject.

On the other hand, if someone does have the potential to make it big, it is in this company's best interest (and some would say society's in general) to "invest" in the person. It could end up paying off much better for everyone than the typical 9-to-5 job.

1. If you're deep in debt, your only real option is to do whatever it takes to get a steady, safe job that pays cash and lets you pay off the debt. Your "take home" after debt and living expenses is close to zero.

I think you've got it. I'm in group #2 myself, but know a lot of people in group #1 who make a lot more than me on paper but seem to be only treading water.

Seems like we're headed for "there be dragons here" territory with respect to the debt-slavery I'm watching take hold. What's the point of making 60k or 70k per year if you're working 60 hours per week and struggling to pay rent (which is money flushed down the toilet) and your student loans? The really frightening thing to me is that (and this is eit

This is just a spin-off of kickstarter. The idea itself is stupid for the reasons you mention + many more, but chances are you will probably never hear of it again because of... well it's lack of credibility and the insane risk of betting on a college grad. I'm sure we'll see a few more spin-offs posted here on slashdot or likewise in the next year or two.

Yea, but you are probably ignoring what you get back come tax time? I know my school loans don't look too low on paper either (6-9%), but after taking the tax deductions, I'm really only paying about 1-2%.

That is simply a rediculous statement. First off it only allows you to take deductions, which returns to you a maximum of 25% of your interest payment. That means that even if you are getting a 6% rate the deduction only reduces that to 4.5% (not 1-2%).

And if you are actually successful after graduation, you probably won't even get the deduction because it starts phasing out at only $55k modified AGI.

In 1998 maybe that was possible, go look around what tuition costs these days.

The university I attended charges something like $33,000 a year. A relatively cheap state school might go for $10,000 a year. Still not the kind of money a minimum wager earner is ever going to have to spare.

That was my thought. Take out student loans, go to school, get one of these loans after you get out, use it to pay off your school loans, default on this new loan, wait for it to come off your credit record in 7 years. Far better than having that school loan that stays on your record forever otherwise.

That is why we are nearing the end of another boom/bust cycle with consumer credit debt. Lenders are finding out that they can no longer trust borrowers to actually repay their debt. Too many people are willing to take the hit to their credit/reputation and just walk away.

Because every recently graduated twenty-something truly believes their ideas alone are worth something (traditional investors will try to take 51% if they are), their academic pedigree automatically translates to a large income later in life (doesn't mean squat, you were lied to at a young age by your parents), corporate jobs are for suckers (whatever you do, don't learn from those who have been there and built a business before you), and you're entitled to your fucking money right-goddamn-now because an al

Must be getting a lot dumber. I'm willing to bet an insane amount of money relative to my income that the credit cards companies are FAR FAR better at predicting who to loan money too than any Googler. They have the advantage of having Googler level employees, years of experience, and financial greed driving them.

You can not predict what they will be worth in 10 years, they don't have any idea what they'll even like NEXT YEAR, let alone 10 years.

Once you get a little older you realize that the person you were when you got out of school is entirely different than the person you are 10 years later. Its well accepted fact that no one under 25 knows who they are, and no one under 30 is really sure who they are.

Must be getting a lot dumber. I'm willing to bet an insane amount of money relative to my income that the credit cards companies are FAR FAR better at predicting who to loan money too than any Googler. They have the advantage of having Googler level employees, years of experience, and financial greed driving them.

You can not predict what they will be worth in 10 years, they don't have any idea what they'll even like NEXT YEAR, let alone 10 years.

Once you get a little older you realize that the person you were when you got out of school is entirely different than the person you are 10 years later. Its well accepted fact that no one under 25 knows who they are, and no one under 30 is really sure who they are.

The thing is, a credit card company is really only trying to find and/or convince customers to borrow to the point where they have too much debt to fully repay at any point in the near or medium term, and then charge just enough interest to keep them paying instead of filing for some sort of debt relief or bankruptcy. To think that credit card companies are in the business of only giving credit to those most worthy/capable of repaying is to completely miss the nature of the global banking/debt industry. Quite the opposite, if you are in a position to easily repay credit card debt you aren't a sought after customer.
The model for that is certainly different compared to one whose intention is to find candidates who will be relatively successful and capable of full repaying at some medium-term point (10 years) and yield a comfortably high return for the investors.

For one, credit card companies have no trouble lending to people can easily repay debt. While they like interest, they don't mind just getting fees. I always pay off my credit cards, since I am in a financial situation that makes that feasible for me to do, I don't carry a balance, and yet I have tons of credit, and get offers for more all the time. While they may not make a ton on me, it is extremely low risk and that makes them happy. There's a big market for low-risk loans. Have a look at the US Treasuri

If a company has 53,000 employees, they can't all be geniuses. I've encountered 3 Google employees in a professional setting and heard one reliable first-hand story from my wife. Out of that sample of 4, all the Googlers impressed me: two with their brilliance, and two with their stupidity.

To be fair, this is "crowdfunding" idea comes from someone whom Google spat out...

Must be getting a lot dumber. I'm willing to bet an insane amount of money relative to my income that the credit cards companies are FAR FAR better at predicting who to loan money too than any Googler.

I'm going to bet you my dog's credit card offer that they don't.

Once you get a little older you realize that the person you were when you got out of school is entirely different than the person you are 10 years later.

I don't believe that they're dumb. Consider for a moment if you will what their true purpose in this venture might be, never mind the Silicon Valley bullshit about "changing the world". They're providing just enough money to get started, but not enough to really get going. Suppose that 19 out of 20 loans eventually gets sold or goes bad. They can still take the one that actually got off the ground into their 1st round of VC funding, making the introduction for a cut, or funding it further themselves for a 6

I'm faced with a dilemma here: I'm an algorithmist, and believe most questions can be more accurately be answered, in the long run at least, by a well developed algorithm than even the most skilled human being. This should be a good thing, then, finding a better answer for funding projects, and accurately determining loans.

Where I became concerned, is that a lot of success is then predicated on some system determining that you'd be successful, and might therefor create a systemic problem sorting the undeserving into future success, by virtue of predicting it, and leaving those who have the spirit to succeed, but not the resources, to languish without recourse. It seems it could make the rich richer, and the poor poorer, even more than our current system, which already does so.

I feel this approach fails to account for its own effect upon the market. A world where you get divided into upper class and lower class on factors beyond your own control should scare just about anyone.

Back then you really didn't need to. My dad got a job as a carpenter because at the time it was paying about 4x what he would have been making working his way up at an architectural firm.

These days, we've shipped most of the high paying jobs that don't require a college degree off shore and been importing college graduates to ensure the ones that do go to college can't make enough money to pay off their loans. Until labor laws and regulations are reformed to punish businesses that do that, it's going to be

I'm faced with a dilemma here: I'm an algorithmist, and believe most questions can be more accurately be answered, in the long run at least, by a well developed algorithm than even the most skilled human being.

I agree, but there are a number of things about this case that are problematic for algorithmic analysis as such:

1) Ten years from now the primary growth industry in tech is going to be rasting, which won't be invented for another three years. How do you predict who is going to be successful in the highly competitive counter-rast and ablatives industries?

2) Related to that, Google is a stable corporate environment in which some kind of prediction has been possible for the past few years. The world is not s

This is a loan you can get rid of via bankruptcy, unlike student loans. For a young 20 something bankruptcy is not that big a deal. They won't be buying a house for nearly a decade anyway, will want the freedom to move and likely have credit card debt to discharge if they can as well.

I'm not sure how "cannot be discharged in bankruptcy" can be considered a "generous" term.

If I were 23 years old with $100K in student debt, I'd gladly exchange a non-dischargeable loan at 4% for a dischargeable one at 10%. Your payment goes from $1,000/mo to $1,300/mo, but that extra $300/mo is a price i'd be glad to pay for the option to default and have it wiped clean.

The difference is that the liberal arts majors have a better chance of getting and keeping a job than the STEM majors do. Considering that you really need a masters minimum to do much in those fields and the degree of specialization involved, you had better hope that the company you work for isn't interested in importing workers to fill those jobs and that you're not downsized. Otherwise, you're going to be at a significant disadvantage to liberal arts majors that didn't specialize to any meaningful extent

I looked in the article to see what fine entrepreneurs this company had helped out:

Brandon Chicotsky, an upstart educated at UT-Austin and NYU, is the founder of an “animate social marketing” business, BaldLogo.com, that offers advertisers the chance to emblazon their logos on the heads of bald men like himself. He’s using the $15,000 he raised on Upstart to wipe out half of his student debt, and says his backers have helped him review pitch decks and sent offers of future business partnerships.

Emphasis mine. Hey, good luck with that. I don't want anything to do with this. I have never lived beyond my means and while I've had to work my ass off these past ten years to pay off all of my student loans in two years, I've also saved up enough money to start a business. I'm waiting and testing the waters for customers because that money was really hard to earn so right now it's just $50 a year on a VPS and some slick coding on the side. Personally I feel this is a healthier safer model that will prevent me from flushing money down the drain but you're free to spend your money where you want. If I ever get revenue too large for me to handle on my own, I'll seek backing. I didn't even know "pitch decks" still existed... I thought that was something they brought back for a TV show.

Have fun when that novelty wears off and it's synonymous with "douche" to turn yourself into a walking billboard (I thought we were past this, people, time to bust out my Member's Only jacket).

going to a community college and living at home instead of dorms for the first couple of years.

"On the other hand, there are also a ton of 30 year olds who are still living at home in "mommy and daddy's basement"."

Sadly, a lot of them actually have graduate (Even PhD) liberal arts degree..... there needs to be a special job program for those.... I am sure somewhere will be able to utilize all these highly-educated people....

Well, student loans are virtually impossible to discharge through bankruptcy [wikipedia.org], which is presumably not the case with these loans, so they are a great deal for the student that doesn't plan to actually pay the money back (probably less great for the lender).

which is presumably not the case with these loans, so they are a great deal for the student that doesn't plan to actually pay the money back

Surely that problem has occurred to these ex-Googlers? The first thing that any "success" algorithm would have to do is filter out opportunists of the sort you describe from the lending pool; otherwise, this venture of theirs will be swiftly bankrupted by those looking to unload their student loan debt on a bunch of suckers so that they can turn around and default.

See "The Unincorporated Man" by Dani Kollin and Eytan Kollin for a full explanation of this idea, and some ramifications. A bit hyperbolic (I think the authors have a bit of a libertarian streak) but a decent read.

Of course, the folks who created Upstart really are well-connected. And I'll bet if you were in that well-connected club and looking for the best and the brightest, you might call them up and ask them if they knew of any good people.

This is rank speculation, but I wonder if the backend part of this model is more like a high-priced HR staffing firm, so it boils down to identifying folks that can pass "Google" muster, hook them on some debt and then pump them out to high-paying elite clients. In addition

Shouldn't there be a way to calculate how efficiently a man can be weaponized -- through training, drugs, surgery, cybernetics, social engineering -- so the State can induct the best candidates into service?

Jerry Lundegaard: No, but, Wade, see, I was bringin' you this deal for you to loan me the money to put in. It's my deal here, see?Stan Grossman: Jerry, we thought you were bringin' us an investment.Jerry Lundegaard: Yah, right.Stan Grossman: You're sayin'... What're you sayin'?Wade Gustafson: You're sayin' that we put in all the money and you collect when it pays off?Jerry Lundegaard: No, no. I- I 'd, pay you back the principal, and interest. Heck, I'd go one over prime?Stan Grossman: We're not a bank, Jerr

Really, that's all ideas like this are. Same with "startup incubators" and the like: They want the next Mark Zuckerberg to come to them with a great idea, work their butt off thinking they're going to become really rich, and instead make the investors really rich.

And in this case, because it's a loan, the would-be Mark Zuckerberg takes on all the risk, too. Heads, I win. Tails, you lose.

I wonder how much this company would have given young Steve Jobs -- a long haired Liberal Arts College drop out back from an Ashram stinking of Patchouli or Bill Gates, another drop out, but from a substantially more well regarded school.

Sorry, but good grades from big name schools does not equal stellar success. We see time and time again that it's the "unlikely underdog" or the free thinker not bound by mainstream convention that has what it takes to be the "upstart" that sets any entrenched industry or p

A smart, creative, would have gotten lots of grants for undergraduate, supplemented it with a good parttime job or entreprenuership, and would have been paid a surplus in grad school. That how I got out of two ivies debt-free.

Success is "successful at Google" -- I've been wondering how long it would take for something like "The Sources of the Nile" to happen.(If you haven't read the Avram Davidson story, find it sometime in a library, thank the librarian, and muse on how it's done nowadays.)

also give 2 year and tech / trade school plans more meaning. To much is betting put on 4 year schools that is pulling then down even more so then HR is trying to trun them into trades / tech schools when they are not really setup for that.

or make all student loans (or at least, the private ones) dischargable under chapter 7 bankruptcy.

When that happens, bank raise the bar for getting the loan, less people getting them, less funds for tuition, less people go to college to feed those overpaid administrators, tuition price will come down due to market force.